The information below was taken from the US department of Veterans Affairs web site

What Is VA Disability Compensation?
Disability compensation is a benefit paid to a veteran because of injuries or diseases that happened while on active duty, or were made worse by active military service. It is also paid to certain veterans disabled from VA health care. The benefits are tax-free. This benefit program evaluates disability resulting from all types of diseases and injuries encountered as a result of military service.

The degrees of disability that are determined by VA represent, as far as can practicably be determined, the average loss in wages resulting from covered diseases and injuries and their complications in civil occupations. Generally, the degrees of disability specified are also designed to compensate for considerable loss of working time from exacerbations or illnesses.

Who Is Eligible?
You may be eligible for disability compensation if you have a service-related disability and you were discharged under other than dishonorable conditions.

How Much Does VA Pay?
The amount of basic benefit paid ranges from $117 to $2,527 per month (2008 rates) , depending on how disabled you are.

Note: You may be paid additional amounts, in certain instances, if:

 you have very severe disabilities or loss of limb(s)

 you have a spouse, child(ren), or dependent parent(s)

 you have a seriously disabled spouse

How Can You Apply?You can apply by filling out VA Form 21-526, Veterans Application for Compensation and/or Pension. If you have any of the following material, please attach it to your application:

 Discharge or separation papers (DD214 or equivalent)

 Dependency records (marriage & children's birth certificates)

 Medical evidence (doctor & hospital reports)

Special Monthly Compensation (SMC) for Serious Disabilities

Can a Veteran Receive Additional Payments for Serious Disabilities?
VA can pay additional compensation to a veteran who, as a result of military service, incurred the loss or loss of use of specific organs or extremities.

What Is Considered Loss or Loss of Use?Loss, or loss of use, is described as either an amputation or, having no effective remaining function of an extremity or organ. The disabilities VA can consider for SMC include:

 loss, or loss of use, of a hand or foot

 immobility of a joint or paralysis

 loss of sight of an eye (having only light perception)

 loss, or loss of use, of a reproductive organ

 complete loss, or loss of use, of both buttocks

 deafness of both ears (having absence of air and bone conduction)

 inability to communicate by speech (complete organic aphonia)

 loss of a percentage of tissue from a single breast, or both breasts, from mastectomy or radiation treatment

VA will pay higher rates for combinations of these disabilities such as loss or loss of use of the feet, legs, hands, and arms, in specific monetary increments, based on the particular combination of the disabilities. There are also higher payments for various combinations of severe deafness with bilateral blindness.

Additional SMC is available if a veteran is service connected for paraplegia, with complete loss of bowel and bladder control.

In addition, if you have other service-connected disabilities that, in combination with the above special monthly compensation, meet certain criteria, a higher amount of SMC can also be considered.

Can VA Pay SMC for Being Bedridden, Housebound, or in Need of the Aid and Attendance of Another Person?
If a veteran is service connected at the 100% rate and is housebound, bedridden, or is so helpless to need the aid and attendance of another person, then consideration of payment of additional SMC can be considered. The amount of SMC will vary depending on the level of aid and attendance needed.

How Can You Apply?
You should contact you local VA regional office for information about applying for SMC. In determining qualifications for SMC, the VA must review the medical evidence regarding the loss or loss of use and then make a decision regarding the level of SMC to be paid.